Op-Ed: California’s high court just proved pension reform doesn’t enforce itself

California's Supreme Court ruled on July 27 that a retired county lawyer cannot count 40 extra hours of cashed-out vacation toward his pension. Those 40 hours were worth roughly $4,400 in cash, about one week of his salary based on his final county pay. That one-time sum was never the real dispute. The real dispute was how much those hours would have permanently raised his monthly pension check, every month, for the rest of his life.

 

Settling that question took 13 years, and it says something about pension law that no legislature wants to admit. Writing an anti-spiking statute is the easy part. Enforcing it is another matter.

 

I have spent three decades in institutional investment management, including working as an expert witness in fiduciary litigation, and I have watched this pattern repeat across public pension systems nationwide. A legislature passes a reform. The plain language looks airtight on paper. Then someone finds the gap anyway, and it takes a decade of litigation to close it.

 

The case, Ventura County Employees' Retirement Association v. Criminal Justice Attorneys Association of Ventura County, turned on retired Ventura County Counsel Leroy Smith. His employment contract let him cash out 200 hours of accrued leave per calendar year. When he retired in 2020, he designated his final year of service as October 2019 to October 2020, a period that straddled two calendar years and let him stack cashouts from both into what he called a single final year, totaling 240 hours. The Ventura County Employees' Retirement Association said no to the extra 40. Smith and two public safety unions sued.

 

The statute at issue is part of the Public Employees' Pension Reform Act of 2013 that Gov. Jerry Brown signed in 2013. It excludes leave cashouts above a worker's contractual annual limit from pensionable compensation, language written specifically to stop pension spiking, the practice of artificially inflating an employee's pay in the final years before retirement, through cashed-out leave, heavy overtime, or a late promotion so a pension formula locks in a permanently higher monthly check than a full career of ordinary earnings would justify. The California Supreme Court had already read a companion provision of the same law in Alameda County Deputy Sheriff's Association v. Alameda County Employees' Retirement Association, a 2020 case, and found the Legislature's purpose unmistakable: block last-minute income inflation before retirement. Even with that precedent already on the books, the Smith dispute went three rounds, through a trial court, an appellate panel, and finally a unanimous California Supreme Court opinion, before the question of 40 hours of vacation time got settled for good.

 

Multiply that uncertainty across California's 20 independently governed county retirement systems under the County Employees Retirement Law of 1937, the law that created VCERA and its counterparts, and the exposure stops looking trivial. Every county system that read the statute differently carried undisclosed pension liability for years while the courts sorted it out, the actuarial equivalent of driving with a check-engine light you have decided to ignore.

 

VCERA got the interpretation right from the start and had the resources to defend it through three levels of courts against two public safety unions with every incentive to test the boundary. Most county systems do not have that luxury, and most retirees do not have the patience to spend a decade litigating 40 hours of vacation pay. That asymmetry is the actual lesson here. A well-drafted anti-spiking statute does not enforce itself. It depends on a retirement system with the institutional will and the legal budget to say no to its own members and make that answer stick in court twice.

 

I have reviewed governance records for chronically underfunded pension funds elsewhere in this state, and the ones that struggle share a common feature. They will not hold the line on ambiguous compensation rules even when the statute is clear, because saying no to a retiring colleague is harder than saying yes. Ventura County's system did the harder thing. Sacramento should notice and stop assuming that statutory language alone will protect the pension math the state depends on.

 

The legislature already wrote this rule in 2013. It took until 2026 for the state's highest court to confirm that the rule means what it says. California cannot keep relying on litigation to finish the job legislation was supposed to do, not when 19 other county systems and thousands of employment contracts remain untested against the same boundary.